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The Capital

What Are Block Rewards?

The motivation that keeps miners going — And the Bitcoin Blockchain thriving

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Block reward is what you call it when a miner is rewarded new bitcoins by the blockchain network after successfully validating a new block. Two components make a block reward: block subsidy and transaction fees. A block subsidy is comprised of newly minted coins and it represents block reward’s biggest part. The other part consists of all fees paid from the transactions made on that block. Since block rewards come from block subsidy, it is common for people to interchange the two, referring to block subsidy when you are talking about block rewards. It is good to remember that block rewards do not include the fees.

Block Subsidy

As for Bitcoin, the starting block subsidy was 50 BTC and programmed to be reduced in half once every four years, or every after 210,000 blocks. This is known as the Bitcoin Halving event. Bitcoin’s initial 50 BTC block subsidy was halved to 25 BTC in 2012. The halving event of 2016 reduced the mining reward to 12.5 BTC. The halving event in May of 2020 has seen the BTC block reward going down to 6.25 BTC. The principle behind this is that as bitcoins become scarce, prices are kept high as fewer bitcoins becomes available (only 21 million will ever be available). After 64 more iterations until 2140, the block reward will eventually hit zero.

The Block

The size of a bitcoin block is 1 MB where bitcoin transaction information is stored. When Bob sends money to Alice, the transaction information is recorded on the block.

Crypto miners employ mining devices to look for new blocks and receive rewards for their efforts with block rewards. You can find similar reward mechanisms with other cryptocurrencies when recognizing the efforts of their miners. Miners compete for new blocks and the winning miner can claim a block reward and that would be recorded as the first transaction on that block.

Bitcoin Miners and Mining

Block rewards are the results of bitcoin mining where highly powerful computers are tasked to solve complex mathematical problems which are impossible to solve by hand.

Two factors are considered in Bitcoin mining. First, upon solving the computational math problem, it produces a new bitcoin, just like in conventional mining when a miner extracts gold. And the second is, when miners solve the complex problem, the bitcoin blockchain becomes more secure and trustworthy owing to the miners verifying transaction information.

Transaction is the digital sending and receiving of bitcoins which miners record and clump together in blocks and added to the blockchain. Miners see to it that transactions are accurate and not duplicated. Through the distributed ledger technology or DLT, participating computers or nodes will store the same records of the transaction blocks ready for verification at any time.

Conclusion

An average of 300,000 sales and purchases occur each day that can flood miners with loads of work by verifying each transaction. That is why they are rewarded with bitcoins to compensate their gargantuan efforts of transaction verification after adding a new block of transactions to the Blockchain. By 2140, as block rewards with bitcoin grinds to a halt, miners will instead be rewarded with transaction processing fees to be paid by network users. The fees will serve as incentives for miners to keep mining so that the network keeps thriving after the halvings are through.

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Wallex Trust & Custody

Wallex Trust & Custody

WallexTrust is a technology-driven financial trust service providing financial solutions for the new digital economy.

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